Euro Surges Against Pound as ECB Readies Rate Hike
The Euro has continued its upward trend against the Pound Sterling, reaching its highest level since July 1. The EUR/GBP cross is currently trading around 0.8589 and has been in a narrow consolidation range since late July. This movement can be attributed to diverging near-term monetary policy expectations between the European Central Bank (ECB) and the Bank of England (BoE).
The ECB is widely expected to raise its deposit rate by 25 basis points to 2.50% at its September 9-10 meeting, marking its second rate increase this year. This move aims to contain inflation, which has been fueled by the war in the Middle East and elevated oil prices.
Recent Eurozone inflation figures have reinforced these expectations, with the preliminary Harmonized Index of Consumer Prices (HICP) accelerating to 3.3% YoY in August from 2.9% in July. ECB policymaker Gediminas Šimkus stated that it is clear that rates should be hiked in September and that new projections will likely move the rate path up a bit.
In contrast, the BoE is expected to leave its policy rate unchanged at 3.75% later this month despite UK inflation running above the central bank's 2% target. A Reuters poll conducted between August 13 and 18 found that nearly 90% of economists expect the BoE to leave interest rates unchanged through the end of 2026.